United States: Medical Benefits After Tackett: Under "Ordinary Principles Of Contract Law," Us Court Of Appeals For The Sixth Circuit Holds That Retirees Have No Vested Right To Lifetime Benefits

Strategies for providing effective health benefits to employees
have shifted dramatically in the past two decades. Nevertheless,
some companies continue to bear the burdens of legacy benefit
liabilities.

Until recently, courts had a practice of interpreting benefits
arrangements in collective-bargaining agreements ("CBAs")
to ensure lifetime coverage—often defying the company's
expectations in the process. But the legal environment has changed.
Now is the time for companies to press ahead in reducing legacy
costs on their balance sheets.

Before 2015, plaintiffs filed claims for lifetime health
benefits in the Sixth Circuit, whenever possible, because that
court's decision in International Union, United Auto,
Aerospace, & Agricultural Implement Workers of America v.
Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), created an
"inference" that, absent express evidence to the
contrary, retiree benefits were intended to vest for life. Then,
the US Supreme Court decided M & G Polymers USA, LLC v.
Tackett, 135 S. Ct. 926 (2015). In that decision, the Court
soundly rejected the Yard-Man inference and held that
"ordinary principles of contract law" should govern the
temporal scope of CBA benefits arrangements. That decision
intensifies the burden on plaintiffs to show a meeting of the minds
on lifetime benefits for cases brought in the Sixth Circuit and
also in jurisdictions less favorable to unions. But
Tackett did not resolve how "ordinary principles of
contract law" should be applied to the familiar terms of
CBAs.

Last week, the Sixth Circuit issued a sweeping decision that
confirms that "ordinary principles of contract law"
rarely will require a company to freeze outdated benefits in
place.

In Gallo v. Moen Inc., No. 14-3633 (6th Cir. Feb. 8,
2016), a class of retirees who had worked at a shuttered Ohio
factory alleged that they had been promised lifetime health
benefits. They claimed that an agreement entered into at the time
of the plant's closure provided that healthcare coverage
"shall continue" for beneficiaries "as
indicated" under the final CBA. The retirees alleged that Moen
violated that agreement when it later altered the retirees'
benefits.

The district court sided with the retirees, in a
pre-Tackett ruling, invoking Yard-Man's
"nudge in favor of vesting." Moen appealed, and the Sixth
Circuit reversed. Applying the "ordinary principles of
contract law," the court found "nothing in ... any of the
CBAs [that] says Moen committed to provide unalterable healthcare
benefits ... for life." Concluding, therefore, that the
contract was ambiguous, the court examined the contract for
evidence of the parties' intent.

Upon a close examination, the court found no evidence that the
parties had agreed to lifetime benefits. At the outset, the court
observed that the last CBA was explicitly a three-year agreement,
and that courts "should not expect to find lifetime
commitments in time-limited agreements." Indeed, the court
noted that no other courts have found "a promise of lifetime
unalterable healthcare benefits based on CBA language of this sort
in a time-limited agreement."

The court also emphasized that interpretations of contracts
should not make any terms superfluous, and that reading the CBA to
include lifetime benefits would violate that canon. The CBA, for
example, stated that various benefits would "continue,"
indicating that lifetime benefits had not vested in similarly
worded CBAs. Furthermore, the CBA explicitly vested pension
benefits for life. If the CBA vested healthcare benefits, then
neither provision would have been necessary.

The court rejected the plaintiffs' arguments to the
contrary. Although the contract did use the future tense when
referring to benefits, the court wrote that "the use of the
future tense without more ... does not guarantee lifetime
benefits." And the court refused to look beyond the four
corners of the contract, because "[a]bsent ambiguity from this
threshold inquiry, no basis for going beyond the contract's
four corners exists."

Judge Stranch dissented. She agreed that ordinary contract
principles must govern, but stated that she would have applied that
standard in a manner favoring the plaintiffs.

Gallo shows how far the law has moved since
Tackett. The days of granting "nudges" in favor
of vested benefits have come to a close. As a result, many
companies that have previously deferred the modernization of their
legacy benefits obligations will want to reevaluate the applicable
agreements, as now may be the right time to press ahead with
long-overdue changes.

Mayer Brown is a global legal services provider
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"Mayer Brown Practices"). The Mayer Brown Practices are:
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entities in Asia; and Tauil & Chequer Advogados, a Brazilian
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Brown" and the Mayer Brown logo are the trademarks of the
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This
Mayer Brown article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein.

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